HOLDING: Transfer of business does not occur between two companies under Section 22 if (1) there is no evidence that transferee acquired transferor’s trade name or goodwill; (2) transferee and transferor provide similar, but different, services; (3) there is no evidence that transferor transferred more than 75 percent of its assets to transferee; and (4) owner of transferee did not previously hold a managerial position within the transferor.

FACTS: Between two consecutive years, the unemployment insurance tax rate for company LRS (Transferor) increased from 2.4 percent to 6.7 percent. Around the same time, Transferor transferred 135 of its 191 employees to company GLRS (Transferee). There were many connections between the two companie, such as the owner of Transferee was a one time employee of Transferor, and the two companies shared a controller and an accountant. Both companies were also in the business of providing staffing, except Transferee provided some services that Transferor did not. The owner of Transferee testified that he founded the new company because Transferor was not interested in providing such services.

The State of Michigan claims that a “transfer of business” occurred between the two companies under the meaning of Section 22 when Transferor transferred the employees to Transferee, while the Transferee argues that no such transfer occurred. The Board of Review found for the State of Michigan. Transferee appealed to the Circuit Court.

DECISION: The Circuit Court reversed the decision of the Board of Review as contrary to law and not supported by the evidence on the record.

RATIONALE: No transfer of business occurred under Section 22(a)(1) and (2). Transferee did not acquire Transferor’s trade name or goodwill, as transferee used a similar name but Transferor continued to operate under its own name. Furthermore, Transferee was formed to provide a service that owners of Transferor did not provide. Because Transferee provided services that Transferor did not, Transferee was not continuing in the business of Transferor.

Similarly, no transfer of business occurred between Transferor and Transferee under Section 22(b). Transferor did not transfer more than 75 percent of its assets to Transferee. The State of Michigan wrongly assumed that Transferor’s only assets were staffing contracts with other business and that the value of these contracts could be measured by examining only the number of employees. The State ignored other assets, such as goodwill, office equipment, lease/ownership interest, and trained salespeople and clerical staff. However, even if the State’s assumption was correct, Transferee only transferred 135 out of 191 employees– approximately 70 percent. Transferor therefore transferred less than 75 percent of its assets to Transferee even under the State’s narrow view of assets.

Finally, Section 22(c) is inapplicable since there is no evidence that owner of Transferee, a former top salesman of Transferor, held a managerial position with Transferor. There is no evidence that owner of Transferee had any control over the decision making process of Transferor. The records show that owner of Transferee created the new company because owners of Transferor did not want to provide certain services.